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The spread of hate and its consequences

J Mulraj | Updated on January 12, 2020 Published on January 10, 2020

American civil rights activist Maya Angelou stated ‘Hate has caused a lot of problems in this world, but it hasn’t solved one yet’.

The recent assassination of an Iranian commander by a drone attack is scary on several fronts. One, it shows the power of the US (and maybe a few others) to wage remote war, without declaring one, and assassinate people on their beliefs, with no need for evidence. Soleimani was described by Trump as a terrorist; yet his funeral was attended by hundreds of thousands. Two, it shows the power of the military-industrial-complex, which can control government policy, perhaps to derive benefit from hostilities (share prices of Defence manufacturers such as Lockheed Martin shot up). It energises the circle of violence that hate begets.

Iran retaliated by missile attacks on two US airbases in Iraq. Will the situation escalate or will the blood-lust be satisfied for now? Bobby Ghosh, writing for Bloomberg, said ‘Iran won’t be satisfied by Iraq missile attacks’. For the global economy that is a frightening portend. The price of crude oil has risen to over $70/barrel, and can rise sharply if hostilities continue, which, for oil import-dependent countries such as India, would cripple GDP growth. The World Bank has lowered India’s GDP growth forecast for FY20 to 5 per cent. It will also significantly hit inward remittances, a lot of which come to India from West Asian countries.

The US has a significantly stronger military capability and the only way Iran can counter that is by using asymmetric warfare. It did this by a missile attack from Yemen, against Saudi Aramco refinery, knocking out a large chunk of its refining capability, and can do it again. Iran can also make passage through the Strait of Hormus, through which about a sixth of the world’s oil passes.

In 2011, Donald Trump had voiced an opinion that President Obama would start a war with Iran in order to win the next election. It seems that he has now done what Obama did not.

The Indian stock market dipped, along with global markets, after the Iranian missile attack, but has since recovered. This is because of the large inflows into the equity market through the systematic investment plan (SIP) route of mutual funds.

The liquidity-driven rally ignores warnings of lower GDP growth, and the ludicrousness of certain orders of investigative agencies. The Serious Fraud Investigation Office (SFIO) had, for example, sought to indict Tata Steel, which acquired Bhushan Steel, in an insolvency proceeding, for criminal charges against the erstwhile owners, prior to the acquisition. The Delhi High Court exempted Tata Steel BSL from appearance, though it should have thrown out the charge against the acquirer.

The insolvency law has not provided for prioritising claims of different categories of creditors, resulting in the inability to reach a solution with the defaulting borrower. Banks were working on resolution plans for some ₹3-lakh crore of outstanding loans but were unable to reach a consensus with others, such as mutual funds and insurance companies. This means that banks would have to provide for 20 per cent of the amount, and their results for the year ending March 2020 would be badly hit.

It is hoped that the Iran situation does not get worse. Domestically, investors would be awaiting the February 1 Union Budget, though one doubts if the FM will have much fiscal room for any significant concessions or spending to boost the economy.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

Published on January 10, 2020